Russia-Ukraine gas row: heating up again

Another fuel row seems to be brewing between Russia and Ukraine. Ukraine needs about $5 billion dollars to fill its gas reservoirs for next winter – a pressing problem for Kiev with Ukraine in financial crisis.

“Right now, gas must be pumped into underground gas reservoirs because with gas storage facilities empty, Ukraine's economy and community services will not be able to operate in the autumn-winter period,” Russian Prime Minister Vladimir Putin said.

Most of Europe's gas comes from Russia via Ukraine – and Moscow pays for transit in advance.

Russia has already paid the full amount for 2009 – which Ukraine spent to buy Russian gas for its own needs. Now it lacks $5 billion to fill up the rest of its stores.

“We discussed the option of Russia paying for the transit of its gas to European users through Ukraine. The term of payment is quite long – up to five years. Obviously, the risks that Russia is facing are just as big, given the forthcoming presidential elections in Ukraine and the possible reorganization of its gas transit structures. We need a consolidated decision from the Ukrainian government,” Vladimir Putin added.

Ukraine's failure to pay the bills might provoke a row similar to last year's crisis.

It wasn't the first one but was by far the worst.

In January, Moscow halted its gas supplies to Ukraine over an unpaid debt and Ukraine refused to transit gas to the EU.

The crisis dragged on for weeks and eighteen countries suffered fuel shortages.

Now Europe wants guarantees that it won't happen again. The Russian president says, though, that they're asking the wrong guy.

“The Russian Federation has not – and will not – give any assurances. Why should we? For our part, there are no problems at all. We are doing everything correctly, both in terms of gas supplies and the fulfillment of our obligations. Let the one who must pay for the gas give assurances,” Dmitry Medvedev said.

Moscow's ready to help Ukraine but wants the EU to share responsibility.

Meanwhile, the EU has already settled next year's funding arrangements, and Kiev is not on the list.

“I'd be very surprised had they offered a loan. First they know they can't get guarantees. And second it's a political decision. During last year's crisis they demanded much from Russia and only mildly criticized Ukraine. They will use this chance to put forward their claims against Russia again,” says Sergey Zhiltsov, Doctor of political studies from the CIS Institute.

Ukraine's last resort might be the IMF, which laid out its conditions for Ukraine: raise consumer gas prices and we'll talk credit – a killer for any politician ahead of the presidential elections.

“In the current conditions of political instability in Ukraine it's not even clear who is responsible for what. GDP for the fist quarter is minus 22 per cent and it is likely to get worse. It is clear that if they get the money, they will also spend it on the election campaign, as they did partially with the IMF loans,” Sergey Zhiltsov believes.

Most experts agree the threat of a new gas row is likely to intensify with the approach of the presidential election in Ukraine. And even after the election, Moscow cannot be sure that the new leadership will abide by previous agreements.

With another fuel row brewing between Russia and Ukraine, Gazprom says the EU should support Russia's South and Nord Stream projects to diversify gas routes.

A Gazprom spokesman said that Ukraine would face difficulties paying for the gas supplied in May.

“The news our Ukrainian colleague brought to the meeting is not very cheerful. The financial state of Naftogaz is extremely bad. Apparently the company will face difficulties paying for the gas, and even for what was supplied in May,” said Gazprom spokesman Sergey Kupriyanov.

“We reminded them that, according to the agreement signed this January, in case of any violation we would require a 100% pre-payment.”

So for the time being, Russia is likely to remain hostage to Ukraine's rival political forces.